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. Last Updated: 07/27/2016

Lebed Post Sends Stocks to New Peak

Russian stocks posted all-time highs Tuesday on news that President Boris Yeltsin named Alexander Lebed to head the Security Council, which investors read as a hopeful sign of the incumbent's prospects in the final round of voting.


The dollar-adjusted Moscow Times Index of 50 shares hit its historic high of 124.51 in the noon fixing -- its highest level since the index was launched in September 1994 -- but settled later to close at 119.45, up 3.43 points from Monday. In ruble terms the index gained more than eight points to close at 274.07.


Brokers bid prices up by 8 to 10 percent before the start of trading on Tuesday, based largely on third-place presidential candidate Lebed supporting Yeltsin and boosting his chances to retain his post. The final MT Index dollar figure represented a 3 percent gain.


Volume on the electronic Russian Trading System was a strong $32.5 million, up from $25 million Monday, when shares rose about 10 percent.


"Obviously almost all of [the rally] was connected with the announcement of Yeltsin's appointment of Lebed to the Security Council and as adviser [to the president]," said Anton Kudriashov, head of equity trading at Renaissance Capital. "It creates a foundation for Yeltsin's showing in the second round."


Lebed emerged as the surprise power-broker after Sunday's first round, securing just less than 15 percent of the vote according to preliminary figures. Yeltsin and Communist Party challenger Gennady Zyuganov courted the retired general in an effort to woo his voters.


Blue-chip issues such as LUKoil and Mosenergo led the market's rise. Mosenergo was the second largest gainer of the index's issues, closing on the Russian Trading System at $0.965 from $0.855 on Monday, a 12 percent leap, while LUKoil ended the day at $9.85 from $9.60. St. Petersburg Telephone was up nearly 15 percent to close at $15.


Yields on government treasury bills continued to tumble, with the average annualized yield on all issues in secondary trading dropping to 132 percent, according to Global Fund Management. Yields on Monday were around 140 to 150 percent, after topping 215 percent in a primary auction last Thursday.


Other markets greeted the Lebed news with optimism as well, with Russian MinFin and Vneshekonombank bonds opening higher Tuesday. Vnesh paper traded at 45.5 cents Tuesday evening, up from 44.38 on Monday. Stock market participants said the push was mostly driven by local brokers but Western investors were active as well.


"We saw a splurge of activity, mostly coming from the hedge funds and the dedicated Russia funds," said Alex Cheporov, who sells Russian equities at Merrill Lynch in London. "But compared to three months ago when the rally started, [Tuesday was] quite insignificant."


Stock prices have been climbing since the MT Index hit its all-time dollar low of 54.33 in March. The index has more than doubled in dollar terms since then, but the upswing signifies profit-seeking rather than serious, strategic investment, brokers said.


"This is still liquid money, not real money," said Berend Yntema, a director at Sector Capital. Significant Western investment flows are unlikely to surface until political questions are put to rest, he added. "That money comes in the fall, that is when the more stable money comes into the market. I have seen, on the strategic investor side, a lot of projects put on hold just to get the political uncertainty out of the way."